Bank funding for small businesses is difficult

Bank lending to the private sector in the UK is still well behind the G7 average, with smaller businesses hit by a ‘hidden credit crunch’, according to research by UHY Hacker Young.

The firm’s report, Trends in global bank lending in the post-financial crisis era, indicates private sector credit volumes in the UK were down by 2.2% in real terms in the last year from $4,442bn (£2631bn) to $4,344bn (£2573bn), while average lending across the G7 economies increased by 0.1% in real terms. Over the four years since the financial crisis, the volume of bank lending to the private sector in the UK has declined by -0.58% in absolute terms.

Laurence Sacker, UHY Hacker Young partner, said: ‘Although the recovery is now taking hold in many developed economies like the UK, problems over bank funding are far from over. Many banks are still unable to lend, especially to smaller businesses, leaving them facing a hidden credit crunch.’

‘Initiatives such as Funding For Lending, which were designed to encourage banks to lend, have had a limited impact on small business lending, and if restricted access to funding continues, it risks creating a drag on the UK’s nascent economic recovery,’ Sacker said.

The Community Development Finance Association (CDFA) is the trade body representing 40 community development finance institutions (CDFIs) responsible for funding over 10,000 small businesses rejected for bank finance last year. It has now announced a partnership with finance portal alternativebusinessfunding.co.uk specifically to support SMEs requiring non-bank funding solutions.

Ben Hughes, CDFA chief executive, said: ‘CDFIs have provided vital support to thousands of businesses in the past and we want to help ten times more in the future. With the help of recent funding, we are in a good position to lend to many more businesses, and are very excited to be part of the alternative business funding portal. Linking up with other leading funders makes it easy for small business owners to navigate the options and find what’s right for them."